November 27, 2007
In the grimmest assessment to date, the U.S. Conference of Mayors says the subprime mortgage meltdown and resulting wave of home foreclosures will have massive economic consequences for the nations 361 metro areas.
The mayors report projects $166 billion in lost Gross Domestic Product growth, stemming for plunging real estate values.
Prepared by the economic and financial analysis firm Global Insight, the report projects that the foreclosure crisis will result in 524,000 fewer jobs being created next year and a potential loss of $6.6 billion in tax revenues in ten states.
While the report stops short of forecasting a recession, it says that 128 metro areas will be pushed into a sluggish GMP growth of less than two percent in 2008. Growth will be cut by more than a third in 65 metro areas and by more than a quarter in 143 metro areas.
The largest metro, New York, loses over $10 billion in 2008 economic output as a result of the mortgage crisis, followed by Los Angeles ($8.3 billion), Dallas ($4.0 billion), Washington ($4.0 billion), and Chicago ($3.9 billion).
Not that long ago economists said housing was the backbone of our economy, said Mayors Conference President Douglas Palmer, Mayor of Trenton, NJ, at a meeting of mayors, mortgage industry representatives and community advocacy groups in Detroit.
Today the foreclosure crisis has the potential to break the back of our economy, as well as the backs of millions of American families, if we dont do something soon. We must not let the economic numbers mask the face of this tragedy the families who are struggling to pay their mortgages and stay in their homes.
Frontlines
Weve all seen the headlines and read about how Wall Street is being impacted, but at the local level, mayors are on the frontlines everyday and our constituents are looking to us for solutions, said Detroit Mayor Kwame Kilpatrick. The foreclosure crisis is no longer just about mortgages, entire neighborhoods are being negatively affected on several levels. This issue is now the number one economic challenge of many major American cities.
The report found that weak residential investment, lower spending and income in the construction industries and curtailed consumer spending resulting from decreased home equity will have multiplier effects on the nations economy.
The report says the foreclosure crisis alone will reduce home values by an additional $519 billion in 2008, bringing the total forecast of lost equity for the nations homeowners to $1.2 trillion. It expects foreclosures will increase by at least 1.4 million in 2008; these homes represent a market value of $316 billion.
One partial solution announced at the meeting is a partnership between USCM and the Mortgage Bankers Association of America to create a free, online database that will list the owners and/or servicers of foreclosed properties. This database will help local officials identify the entity legally responsible for maintaining vacated, foreclosed properties.
Both Kilpatrick and Palmer said mayors must urge borrowers to contact lenders and local counseling agencies to help them modify their loans so they can avoid foreclosure. Mayors also should urge local lenders and loan servicers to be responsive and flexible with borrowers.
